• We also feel that the budget may levy import duty, with prospective effect, on critical equipment imported by power producers from geographies like China and Korea. This is to ensure that, there is no impact on orders already placed, while providing support to the domestic equipment manufacturers

• Overall we expect Union Budget to have a positive impact on the Capital Goods sector

Spotlight: Shipping & Logistics by Amit Agarwal, Research Analyst

• The shipping sector is facing tremendous pressure due to excess supply of tonnage entering the market over CY12-14. Indian companies are primarily exposed to dry bulk and tanker segment and these two segments, we believe, would remain subdued for the next two to three quarters. The estimated demand for tonnage would not be able to absorb such a glut of ships. Hence we are bearish on freight rates in near term

• However we derive comfort from the diversification of Great Eastern Shipping Co. (GE Shipping) in the offshore segment and Mercator Lines Ltd. (MLL) in the mining segment. We believe such diversification would hedge them against the cyclical shipping business. In fact we estimate that the offshore segment for GE Shipping and mining segment for MLL would be the next growth driver

• With demand picking up in shipping segment and new build supplies tapering off, we may see the sector bottoming by the third quarter of FY13. We recommend investors to take position in advance as stocks move ahead of industry fundamentals

• We don’t expect any significant measure for the shipping industry in this year’s Union Budget. However, we can expect the government to revive the old shipbuilding subsidy policy, as shipbuilding is capital intensive industry and Indian yards are competing with global yards in Korea, Japan and China where their industry receives direct and indirect support from the government

• In the listed space in Logistics in India, companies are primarily operating in the area of warehousing, container freight station (CFS), container rail, freight forwarding, non-vessel owning container carrier (NVOCC) and trucking

• In our discussion with companies, most of the them, including Concor, GDL, Arshiya and Allcargo, are expecting the FM to announce measures for speedy implementation of the dedicated freight corridor (DFC), which would provide container rail operators a dedicated high speed rail line (like in Europe and US) on important Exim routes. This will lower the turnaround time, improve efficiency and reduce cost for these operators

• Companies are also expecting faster roll out of the Goods and Services Tax (GST) which would synchronize the taxes across geographies, reduce paper work and complexity and also make the industry more organised

• Speedy implementation of the ongoing infrastructure projects would help the industry in terms of reduced cost and higher utilisation

• Companies’, especially the container rail companies, want the ministry of rail to be delinked from the Indian Railways (IR) as the IR is the biggest transporter of goods in the county and the ministry always implements measures which favour the IR risking the interest of private container rail companies like GDL and Arshiya

• An industry status to the Logistics sector by the government would help the companies in the sector in the form of reduced interest cost, strong regulation and more discipline, thus leading to increased equity investment